Gaming M&A frenzy gives Europe extra powers

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LONDON, Jan 19 (Reuters Breakingviews) - Microsoft (MSFT.O) has put new emphasis on old-school gaming. Satya Nadella’s $2.3 trillion firm said on Tuesday it was acquiring “Call of Duty” maker Activision Blizzard (ATVI.O) for $69 billion read more . The vote of confidence in established franchises and its nod to cloud gaming provides a boost to Activision’s transatlantic rivals.

January has opened with a bang for gaming M&A bankers, with Take-Two Interactive Software (TTWO.O) also bidding $13 billion for mobile king Zynga read more . Take-Two boss Strauss Zelnick argued that games played on phones were the best way to reach the billions of potential players for whom dedicated consoles are too expensive. A 64% premium turned attention to other tried-and-trusted mobile app makers. However, the excitement largely bypassed European outfits like Ubisoft Entertainment (UBIP.PA), CD Projekt (CDR.WA) and Embracer (EMBRACb.ST), who focus their energies on developing big-ticket console-based games.

Microsoft’s mega-deal changed that, placing the emphasis on hit multimillion-copy sagas, like CD Projekt’s “The Witcher” and Ubisoft’s “Assassin’s Creed”. Nadella wants to pack Activision’s classic franchises into Microsoft’s gaming subscription service, giving its Xbox console an edge over rivals. And as mobile internet speeds improve with 5G rollout, the Windows maker reckons Blizzard blockbusters like “Overwatch” could be streamed to smartphones via the cloud, in which Microsoft servers do the heavy lifting. If successful, the technology could one day greatly extend the audience for Europe’s big-budget titles.

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The Europeans look cheap, too. Ubisoft and Sweden’s Embracer are both valued far below the 18 times this year’s EBITDA at which Microsoft is acquiring Activision. Take Ubisoft: its shares were trading at 41 euros before last week’s dealmaking kicked off. A 45% premium values the French firm at $9 billion including debt, just 8 times the EBITDA it’s expected to make in the year to next March, according to analyst forecasts compiled by Refinitiv.

Sony (6758.T) could be one potential acquirer read more . The PlayStation maker, which already offers cloud gaming, is also working on its own subscription service, according to Bloomberg. Chinese behemoth Tencent (0700.HK), which bought 5% of Ubisoft in 2018, may be another contender. Big Tech outfits like Amazon.com and Alphabet (GOOGL.O) might even enter the ring. As content wars and the cloud give classics a new lease of life, the Europeans are emerging at the top of the leaderboard.

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CONTEXT NEWS

- Microsoft said on Jan. 18 that it planned to acquire Activision Blizzard for $95 a share in an all-cash transaction valued at $68.7 billion, inclusive of Activision’s net cash.

- Zynga said on Jan. 10 it had agreed to sell itself to Take-Two Interactive Software in a deal valued at $12.7 billion including debt.

- Shares in French game developer Ubisoft Entertainment rose 12% on Jan. 18 on the back of the Microsoft-Activision announcement. Poland’s CD Projekt and Sweden’s Embracer gained 2% and 3% respectively.

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Editing by Ed Cropley and Karen Kwok

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